Individual Tax Considerations for 2020
The Covid-19 pandemic led to a year of change – from personal challenges to national legislation. The CARES Act, which went into effect last spring, provides economic assistance to individuals, families and businesses struggling from coronavirus-related setbacks. If you took advantage of any of the relief efforts implemented under the CARES Act, it may impact your 2020 income tax preparation. Below are a few of the most common tax changes for individuals in 2020 that you should be aware of this tax season.
Economic Impact Payments
The Economic Impact Payment (EIP), or “stimulus check,” you may have received will be reported as a refundable tax credit on your 2020 individual income tax return. The EIPs are treated as advancements on the tax credit, meaning the payment you received will not be considered taxable income to you. If you received the full amount you are entitled to, then you have claimed the full credit and will not be required to pay back any portion of the payment. If you received less than you were entitled to, due to decreased income in 2020 or perhaps having a baby which would be reported as a new dependent on your 2020 return, you are able to claim the additional amount of the credit when you file your taxes.
2020 RMD Holiday
The CARES Act waives all required minimum distributions (RMDs) from IRAs and retirement accounts for calendar year 2020. If you did not withdraw your 2020 RMD, or did withdraw it but later returned the withdrawal within the permitted timeframe, the amount of your usual RMD will not be included in your taxable income. As a result, you may not receive a 1099-R reporting the distribution. If you are under age 59 ½ and took a distribution from your retirement account to offset the financial impacts of the pandemic, you have the option to spread the tax liability for the withdrawal over the next three years. We can help you analyze your tax liability for any such distribution and determine the best option based on your specific circumstances.
Special Charitable Deduction
With so many people, businesses and organizations struggling to survive the pandemic, the CARES Act implemented a special charitable tax deduction for individuals who take the standard deduction instead of itemizing deductions on their return. Normally, charitable giving is only deductible when you itemize. However, under the special provision, anyone choosing the standard deduction who made a cash donation to a qualifying charity in 2020 can deduct up to $300 on their income tax return. If you typically opt for the standard deduction but made charitable donations in 2020, you should provide your tax preparer with a donation receipt to claim this deduction.
With the difficulties of 2020 almost behind us, we wish you peace and stability in the New Year. If we can provide any assistance with your 2020 tax preparation, please contact us.